Navigating Brazil's choppy waters

“It was simple,” says Rob Philippa, founder of New Amsterdam Advisory Services, a back-office consultancy active in the country. “You’d buy a government bond and sprinkle in a few shares of [state-led oil giant] Petrobras and maybe some other companies, and you’d earn 15% risk-free.”

The strategy even held up in the 2008 economic crisis. Although the Brazilian economy shrunk along with that of the rest of the world, the benchmark Sistema Especial de Liquidação e Custodia (SELIC) interest rate peaked at 13.75% (see “Interest rates,” above) while inflation flirted with 7% (see “Inflation,” below) and Brazil became a net creditor nation for the first time in history. Interest rates and GDP growth both plunged in 2009 (see “Brazilian GDP,” below), but by 2010 Brazil seemed to have left the global slowdown behind. Its economy surged 7.5% that year, and the SELIC finished the year at 10.75%.

But the world caught up with Brazil last year, when economic growth slowed to 2.7% and the government began slashing interest rates — from a peak of 12.5% in July 2011 to 8% this past July. The latest cut came just before Petrobras posted its first quarterly loss in more than 13 years, and at press time the market is anticipating another cut to 7.5% by the end of this August. The most optimistic projections for GDP this year are 2%, and those are contingent on a strong second half. June’s GDP growth was just 0.2%, and that came after three consecutive down months.